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Apartment Syndication > Glossary > Flashcards

Glossary Flashcards

1
Q

Accredited Investor

A

Annual income of $200k (single), $300k (joint income) for last 2 years, or a net worth exceeding $1MM

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2
Q

Acquisition Fee

A

Upfront fee paid by new buying partnership to the general partner for finding, evaluating, financing and closing the investment. Fees range from 1% to 5% of purchase price.

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3
Q

Active investing

A

Finding, qualifying and closing on an apartment building using one’s own capital and overseeing the business plan.

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4
Q

Amortization

A

The payoff of a mortgage over time through fixed payments of principal and interest

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5
Q

Apartment Syndication

A

Temporary financial services alliance formed for the purpose of handling a large apartment transaction. Allows companies to pool resources and share risks/returns. Typically a partnership between general partners and limited partners.

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6
Q

Appraisal

A

Report by a certified appraiser that specifies the market value of a property.

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7
Q

Appreciation

A

Increase in value of an asset over time. Natural - market cap decreases over time. Forced - NOI is increased by either increasing revenue or decreasing expenses.

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8
Q

Asset Management Fee

A

Ongoing annual fee from property operations paid to the general partner for property oversight. Typically 2% of collected income or $250/per unit per year.

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9
Q

Bad Debt

A

Amount of uncollected money owed by a tenant after move-out.

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10
Q

Breakeven Occupancy

A

Occupancy rate required to cover all expenses of a property. Calculated by dividing the sum of operating expense and debt service by gross potential income.

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11
Q

Bridge Loan

A

Mortgage loan used until a borrower secures permanent financing. Typically six months to three years. Higher interest rates and typically interest only. Aka interim financing, gap financing or swing loans. Loan is ideal for repositioning an apartment community that doesn’t qualify for permanent agency financing.

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12
Q

Capital Expenditures

A

Funds used by a company to acquire, upgrade and maintain a property. An expense is considered CapEx when it improves the useful life of a property and is capitalized - spreading the cost of the expenditure over the useful life of the asset. Examples: repairing parking lot, replacing roof, carports, landscaping, HVAC, cabinetry, countertops, flooring, fixtures, etc. Does NOT include operating expenses, debt services, fees to the GPs and distributions to LPs.

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13
Q

Cap Rate

A

Rate of return based on the income the property is expected to generate. Calculated by dividing NOI by current market value of property.

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14
Q

Cash Flow

A

Revenue remaining after paying all expenses. Calculated by subtracting the operating expenses and debt service from the effective gross income.

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15
Q

Cash-on-Cash Return

A

The rate of return based on the cash flow and equity investment. Calculated by dividing the cash flow by the initial equity investment.

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16
Q

Closing Costs

A

Expenses over and above the purchase price of a property. Include origination fees, application fees, recording fees, attorney fees, underwriting fees, due diligence fees and credit search fees.

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17
Q

Concessions

A

Credits given to offset rent, application fees, move-in fees and any other cost incurred by tenant (typically offered at move in to entice tenants into signing a lease)

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18
Q

Cost Approach

A

Method of calculating a property’s value based on the cost to replace the property from scratch. Aka replacement approach.

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19
Q

Debt Service

A

Annual mortgage amount paid to lender including principal and interest.

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20
Q

Debt Service Coverage Ratio (DSCR)

A

The ratio that is a measure of the cash flow available to pay the debt obligation. Calculated by dividing the NOI by the total debt service. Ideally > 1.25

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21
Q

Distressed Property

A

Non stabilized apartment community. Typically less than 85% occupancy.

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22
Q

Distributions

A

The limited partners’ portion of the profits, sent monthly, quarterly, annually, at refinance or sale.

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23
Q

Earnest Money

A

Payment to buyers that is a portion of the purchase price to indicate the buyers intention to carry out the deal.

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24
Q

Economic Occupancy Rate

A

The rate of paying tenants based on the total possible revenue and the actual revenue collected. Calculated by dividing the effective gross income by the gross potential income.

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25
Q

Effective Gross Income (EGI)

A

The true positive cash flow. Calculated by subtracting the revenue lost due to vacancy, loss-to-lease, concessions, employee units, model units, and bad debt from the gross potential income.

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26
Q

Employee Unit

A

An apartment unit rented to an employee at a discount or for free.

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27
Q

Equity Investment

A

The upfront costs for purchasing a property. Costs include down payment for mortgage loan, closing costs, financing fees, operating account funding, and fees paid to the GPs. Aka initial cash outlay or down payment.

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28
Q

Equity Multiple

A

The rate of return based on the total net profit and equity investment. Calculated by dividing the sum of the total net profit and equity investment by the equity investment.

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29
Q

Exit Strategy

A

The GPs plan of action for selling the apartment community at the conclusion of the business plan.

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30
Q

Financing Fees

A

One time, upfront fees charged by the lender for providing the debt service.

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31
Q

General Partner (GP)

A

The owner of a partnership who has unlimited liability. Usually a managing partner and involved in day to day operations.

32
Q

Gross Potential Income

A

Hypothetical amount of revenue if the apartment community were 100% leased year round at market rental rates plus all other income.

33
Q

Gross Potential Rent (GPR)

A

Hypothetical amount of revenue if the apartment community were 100% leased year round at market rental rates.

34
Q

Gross Rent Multiplier (GRM)

A

Number of years it would take for a property to pay for itself based on the gross potential rent. Calculated by dividing the purchase price by the annual gross potential rent.

35
Q

Guarantee Fee

A

A fee paid to the loan guarantor at closing for signing for and guaranteeing the loan. Typically 0.5%-5% of the principal balance of the loan paid at closing and/or 5%-30% if the general partnership.

36
Q

Holding Period

A

The amount of time the GP plans on owning the apartment from purchase to sale.

37
Q

Income Approach

A

A method of calculating and apartments value based on Cap Rate and the NOI (value = NOI / Cap Rate)

38
Q

Letter of Intent (LOI)

A

A non binding agreement created by a buyer with their proposed purchase terms.

39
Q

Limited Partner (LP)

A

A partner whose liability is limited to the extent of their share of ownership. Typically a passive investor who funds a portion of the equity investment.

40
Q

Loan-to-Cost Ratio (LTC)

A

The ratio of the value of the total project cost (loan amount + capital expenditure costs) divided by the apartments appraised value.

41
Q

Loan-to-Value (LTV)

A

The ratio of the value of the loan amount divided by the apartments appraised value.

42
Q

London Interbank Offered Rate (LIBOR)

A

A benchmark rate that some of the worlds leading banks charge each other for short term loans.

43
Q

Loss-to-Lease (LtL)

A

The revenue lost based on the market rent and actual rent. Calculated by dividing the gross potential rent minus the actual rent by the gross potential rent.

44
Q

Market Rent

A

The rent amount a willing landlord might reasonable expect to receive and a willing tenant might reasonable expect to pay for tenancy. Typically determined from rent comparable analysis.

45
Q

Metropolitan Statistical Area (MSA)

A

A geographical region containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core.

46
Q

Net Operating Income (NOI)

A

All the revenue from a property minus the operating expenses.

47
Q

Operating Account Funding

A

A reserves fund, over and above the purchase price of an apartment, to cover things like unexpected dips in occupancy, lump sum insurance or tax payments, or higher than expected capex. Typically created by raising extra capital from the LPs.

48
Q

Operating Agreement

A

A document that outlines the responsibilities and ownership percentages for the LPs and the GPs.

49
Q

Operating Expenses

A

The costs of running and maintaining the property and its grounds. Typically broken into the following categories: payroll, maintenance & Repairs, contract services, make ready, advertising/marketing, administrative, utilities, management fees, taxes, insurance, and reserves.

50
Q

Passive Investing

A

Placing one’s capital into an apartment syndication that is managed in its entirety by a GP.

51
Q

Permanent Agency Loan

A

A long-term mortgage loan secured from Fannie or Freddie.

52
Q

Physical Occupancy Rate

A

The proportion of occupied units.

53
Q

Preferred Return

A

The threshold return that LPs are offered prior to GPs receiving payment.

54
Q

Prepayment Penalty

A

A clause in a mortgage contract stating an assessed penalty if a mortgage is paid down or paid off within a certain period.

55
Q

Price Per Unit

A

The cost per unit of purchasing a property.

56
Q

Private Placement Memorandum (PPM)

A

A document that outlines the terms of the investment and the primary risk factors involved with making the investment. Typically 4 sections: introductions, basic disclosures, legal agreement, and subscription agreement.

57
Q

Pro Forma

A

The projected budget with itemized line items for the revenue and expenses for the next 12 months and/or 5 years.

58
Q

Profit and Loss Statement (T-12)

A

A document containing detailed information about the revenue and expenses of a property over the last 12 months.

59
Q

Property and Neighborhood Classes

A

An A, B, C and D ranking system assigned to a property and neighborhood.

60
Q

Property Management Fee

A

An ongoing monthly fee paid to the property management company for managing the day to day operations of the property.

61
Q

Radio Utility Billing System (RUBS)

A

A method of calculating a tenants utility usage based on occupancy, unit square footage, or a combination of both.

62
Q

Recourse

A

The right of the lender to go after personal assets above and beyond the collateral if the borrower defaults on the loan.

63
Q

Refinance

A

The replacing of an existing debt obligation with another debt obligation with different terms.

64
Q

Refinancing Fee

A

A fee paid to the GP for the work required to refinance an apartment.

65
Q

Rent Premium

A

The increase in rent demanded after performing renovations to the interior or exterior of an apartment community.

66
Q

Rent Roll

A

A document of spreadsheet containing detailed information on each of the units in an apartment community.

67
Q

Sales Comparison Approach

A

A method of calculating an apartments value based on similar comps recently sold.

68
Q

Sales Proceeds

A

The profit collected at the sale of the apartment community.

69
Q

Sophisticated Investor

A

A person who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity.

70
Q

Subject Property

A

The apartment the GP intends on purchasing.

71
Q

Submarket

A

A geographic subdivision of a market.

72
Q

Subscription Agreement

A

A document that is a promise by the LLC that owns the property to sell a specific number of shares to a limited partner at a specified price and a promise by that limited partner to pay that price.

73
Q

Underwriting

A

The process of financially evaluating an apartment community to determine the projected returns and an offer price.

74
Q

Vacancy Loss

A

The amount of revenue lost due to unoccupied units.

75
Q

Vacancy Rate

A

The proportion of unoccupied units.

76
Q

Value-Add Property

A

A stabilized apartment community with an economic occupancy above 85% and an opportunity to be improved by adding value.

77
Q

Yield Maintenance

A

A penalty paid by the borrower on a loan if the principal is paid off early.

Apartment Syndication (1 decks)

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